N2H2 pulls ad-sponsored filtering model

By Elizabeth B. Guerard, Associate Editor, eSchool News

November 20th, 2000

In the wake of an industry-wide internet shakeout, failing online advertising campaigns, and criticism from anti-commercialism groups, another education company has decide it can no longer afford to offer free services to schools.

N2H2 Inc. of Seattle, the leading provider of filtering solutions to K-12 districts and creator of the Bess filtering system, announced it will no longer offer its free, ad-based Bess Partners Program filtering system to schools as of the end of the current school year.

The announcement comes on the heels of a similar announcement from ZapMe! Corp., which recently said it could no longer afford to provide schools with free computer labs. The labs were subsidized by ads on the ZapMe! browser.

N2H2’s Bess is the leading internet filter in K-12 schools, according to figures from market research firm Quality Education Data. The company had offered schools a choice between a free web browser containing advertisements and a browser that is ad-free.

But the price was not the same for both models. Because advertisers underwrote the cost of the filtering solutionat least in partthe solution without advertising was more expensive. Schools that agreed to let a banner ad appear at the bottom of each web browser received free filtering and support for the lifetime of the solution.

A ‘softening market’ for online advertising

In a Nov. 16 statement to investors, Peter Nickerson, N2H2’s president and CEO, stated, “Beginning today, we are making a strategic move away from the Bess Partner Program, our advertising model in education. When we initiated this model in September 1999, our goal was to increase market share by making filtering more accessible to schools through a choice of either fee-based filtering or an advertiser-supported offering.

“Now, with internet advertising having softened industry-widecontributing only 13 percent of our revenues in the fourth quarterwe are making the transition toward offering our services on a fee basis only,” he added.

“Internet advertising is a very new concept, and it has not been proven. So far, companies have not found it to be effective,” explained Jim O’Halloran, N2H2’s director of product marketing.

O’Halloran said the company’s intention with the Bess Partners Program was “to allow responsible corporate sponsors to subsidize the service for schools.”

“What we have discovered is that the ‘blue-chip’ sponsors we had targeted to help with this [initiative] did not come forward,” he said. “For example, for a time we had an arrangement with Chevron, but there were simply not enough of these folks coming forward. This is the case all across the internet community.

“Any observer of the internet industry can see that the internet world is having to reckon with online advertising problems. That model does not seem viable.”

O’Halloran said N2H2 might have been able to make the internet advertising model viable, but the company maintained very strict guidelines about which firms it allowed to advertise.

“We declined about 30 percent of potential advertisers. The Bess Partners Program may have been viable if we had violated the advertiser guidelines we set for ourselves, but we chose not to violate those limits,” he said.

The advertising debate

Some observers speculate that N2H2’s surprising announcement might stem, in part, from pressure by anti-commercialism groups, such as Washington, D.C.-based Commercial Alert.

Earlier this year, Commercial Alert participated in a letter-writing campaign aimed at removing advertising from the ZapMe! web browser, an action that ZapMe! executives believe led to the end of their organization’s involvement with education.

“Our critics attacked our sponsors in an effort to undermine us,” ZapMe! CEO Lance Mortensen told eSchool News. “I’d actually like to congratulate our critics for a job well done. They have successfully helped remove technology from our schools. That does not benefit anyone.”

Troubled by the proliferation of commercial advertising in America’s schools, and bolstered by the recent announcement that ZapMe! was getting out of the education business, a coalition of academics and other professionals set its sights on N2H2 just a few weeks before the company’s announcement.

In a Nov. 3 letter sent to President Clinton, Sen. John McCain (R.-Ariz.), and other key members of Congress, the group, which includes Gary Ruskin, director of Commercial Alert, urged that federally mandated internet filters in schools and libraries (such as N2H2’s Bess) should be prohibited from carrying any advertising.

The letter, also sent to Sen. Rick Santorum, R-Pa., Sen. Richard Shelby, R-Ala., and Rep. Ernest Istook, R-Okla., began, “We want to alert you to an unintended consequence of the mandatory software filter provision currently attached to the fiscal year 2001 Labor-HHS-Education appropriations bill.”

The bill in question would require schools nationwide to install filtering software before receiving government funding for certain educational programs, such as the eRate for school connectivity.

The letter urged the policy makers to ensure that “any mandatory software filter provision for schools and libraries that receive federal technology funds also prohibits the filtering program from acting as an advertising delivery mechanism.”

“Our main thought when writing this letter was that safeguarding kids from pornography should not be a reason to open them up to commercialism in school,” said Commercial Alert’s Ruskin.

“We want to make sure it’s federal law that any federally mandated browser will not have advertising on it,” Ruskin added. The group’s proposal is intended to be “a smaller provision inside a much larger provision,” he said.

Besides Ruskin, other signers of the letter included Andrew Hagelshaw, executive director of the Center for Commercial-Free Public Education; Colleen Cordes, co-coordinator of the Alliance for Childhood’s Task Force on Computers in Childhood; and Nancy Willard, project director for Responsible Netizen, an initiative of the University of Oregon’s Center for Advanced Technology in Education.

Immediately after the coalition’s letter to Congress became public, O’Halloran told eSchool News, “Commercialization is nothing new. Anyone who believes that disallowing ads on filtering technology would eliminate commercialism on the internet is sadly misinformed. The internet is replete with commercial messages, for better or for worse.”

O’Halloran said he believed corporate sponsorships could be a boon to schools struggling with budget constraints.

“There is a potential for valuable public-private partnerships at the K-12 level,” he said. “N2H2 has been experimenting with ways to allow responsible commercial entities to help fund school technology.”

But any advertising that targets kids is inappropriate, Ruskin argued. “The purpose of school is not to deliver a captive audience of impressionable schoolchildren directly into the hands of multinational corporations,” he told eSchool News.

When interviewed about the coalition’s letter in early November, O’Halloran said he did not believe the group’s demands would pose a problem for his company.

“I would say the effect of this [letter] will be negligible,” he said at the time. “It is disappointing that these types of concerns end up limiting the potential for partnerships with responsible commercial enterprises. We are losing out on opportunities.”

A ‘lightning rod for controversy’

Following N2H2’s announcement that it would discontinue its ad-based model, O’Halloran said the decision was not a response to pressure from groups like Commercial Alert.

“Groups like that did not affect our decision. We acknowledge that advertising in schools is a real issue, but we are not responding in any way to the singling out of N2H2 in that letter,” he said. “Filtering has always been a lightening rod for controversy, but I can say that this development is a result of real business concerns, not a response to pressure from non-commercial groups.”

O’Halloran also cited a statement posted on a Yahoo message board by one of the signers of the letter to Congress, titled “Praise for N2H2’s Decision on Ads.”

“As a critic of N2H2’s use of advertising on its public school filter, I want to commend the company for [its] decision today to go to a fee-based model. This is a responsible step that hopefully will be met with great success. No one can deny the need for filtering of the internet in schools. With the removal of the ads, I believe N2H2 opens up much larger markets for its filter,” wrote Jim Metrock of Obligation Inc.

“I think it is significant that this group acknowledges the need for internet filtering,” said O’Halloran.

O’Halloran addressed head on the argument that its previous ad-based option was morally flawed and potentially harmful to children.

“I’d contest the inference that our previous choices were not morally responsible. [We] intended to provide schools with an option. We wanted to find constructive public-private partnerships. I’d take issue with any suggestion that advertising in schools is evil by its very nature,” he said.

The future for schools

O’Halloran said N2H2 will work with schools that currently receive free filtering through the Bess Partners Program.

“We are talking with them now to arrange a smooth transition. We’re comfortable with our decision not to disrupt service until June 30, and we plan to work with each customer on an individual basis,” said O’Halloran.

According to O’Halloran, there are currently more than 14 million students using Bess, and of that figure, more than half are using the ad-sponsored Bess Partners Program.

“We’ve informed all the schools of the change, and we hope to work with each of those schools individually. So we’ve got a lot of work to do,” he said.

Initial indications are that schools will continue to use the company’s filtering solution, regardless of the change.

Said Carolyn Worsham, director of instructional technology at Nederland Independent School District in Nederland, Texas (K-12, enr. 5,381), “It will only affect me in that I have to make a decision about where to get the money from. Bess is so valuable to us that we think it is well worth the price.” Nederland has been using the ad-based model for one year, and the fee-based service for two years before that.

According to N2H2, the cost of the program will be similar to the current fees charged for the ad-free service N2H2 already offers schools. Pricing varies widely based on the schoolbut, in general, there is a one-time, non-recurring charge to place a server in the district.

“There is also a monthly fee charged per connected workstation. This varies, but it is approximately $1 or less per connected workstation per month,” said O’Halloran. “The set-up fee also varies according to the network configuration, but it’s usually several thousand dollars.”

According to O’Halloran, schools currently using the service will not be charged set-up fees, but next year they will be charged a monthly service charge if they continue to receive filtering from N2H2.

O’Halloran said N2H2 recognizes there may be some schools that cannot afford the subscription-based service and will have to discontinue their use of the Bess filtering program. In that case, he says, N2H2 will remove the servers from the schools.

“The initial fee is not a purchase; it is a set-up fee. But this is probably a moot point anyway, because there is no real reason they would want to hold onto the proxy server if they are not receiving the filtering service,” he said.

Nederland’s Worsham offers advice to cash-strapped school districts that fear they may be forced to discontinue service: “My advice is to work with N2H2 about setting up a pay schedule that works with your budget year. It is a two-edged sword. It will cost you money, but generally speaking, you get what you pay for.”

Nederland schools have felt the consequences of so-called internet fallout harder than most districts, it seems.

“Right now, I am also negotiating with ZapMe! on what we can do about that problem,” said Worsham. “I’m certainly understanding of the situation. They weren’t making any money. But, at the same time, it is hard when schools are struggling with limited dollars.”